Netflix Q1 Report 2023
Revenue grew 4% year over year in Q1 (+8% on a foreign exchange (F/X) neutral basis ), consistent with
our beginning-of-quarter forecast. Average paid memberships increased 4% year over year, while ARM was -1% vs. Q1’22 (+4% on an F/X neutral basis). Paid net adds amounted to 1.8M for Q1 vs. -0.2M in the year ago quarter. Regional highlights include:
- UCAN revenue grew 8% year over year (both reported and F/X neutral) driven by a 9% increase
in ARM (both reported and F/X neutral). - EMEA revenue was down 2% year over year (+6% on an F/X neutral basis), due primarily to a
decline of 6% in ARM (+1% on an F/X neutral basis), offset partially by a 4% increase in average
paid memberships. - LATAM revenue increased 7% year over year (+13% F/X neutral), with a 3% rise in ARM (+8% F/X neutral). Paid membership dipped by 0.4M, which we believe is due to pull forward from Q4
(when we had a big quarter with 1.8M paid net adds) and ongoing macroeconomic softness. - APAC revenue grew 2% year over year (+10% F/X neutral). Average paid memberships increased
17% year over year. This offset a 13% decrease in ARM (-6% F/X neutral), which was due to plan
mix and a higher mix of member growth in countries with lower pricing.
Operating income totaled $1.7B vs. $2.0B in Q1‘22 – above our guidance forecast of $1.6B due to ongoing expense management and timing of hiring and content spend. Operating margin was 21% compared to 25% in the year ago period. The year over year decline in operating margin was primarily due to F/X – the appreciation of the US dollar accounted for roughly three percentage points of the year over year change in operating margin. Q1’23 EPS of $2.88 (vs. $3.53 in Q1‘22) was in-line with our guidance of $2.82 and included an $81 million non-cash unrealized loss from F/X remeasurement on our Euro denominated debt.
Monetization and Revenue
As we improve our member experience with more must watch stories, we also need to improve our
monetization. This will not only help reaccelerate revenue growth and increase operating margin, it will
also enable us to invest more in great entertainment.
We want to be more sophisticated around pricing so that we offer a range of price points and feature sets to suit consumers’ differing needs. For example, when we launched globally in 2016, we took a fairly uniform approach to pricing across most countries given our focus on early adopters. Over time we’ve adapted our prices to meet local needs and to further deepen our penetration, including lowering prices in India by 20%-60% in December ‘21. These reductions – combined with an improved slate – helped grow engagement in India by nearly 30% year on year while F/X neutral revenue growth in 2022 accelerated to 24% (versus 19% in 2021). Learning from this success, we reduced prices in an additional 116 countries in Q1. While they represented less than 5% of our FY‘22 revenue, we believe that increasing adoption in these markets will help to maximize our revenue longer term.
